What to Do About Micron
The chip maker Micron Technology (MU) fell 5% yesterday, but the stock is amazingly up 4% today.
The see-saw moves are a feature of this strategically important stock to the tech ecosystem and not just a symptom of it.
The stock is highly volatile which is emblematic of a stock that needs to constantly navigate around unstable geopolitics.
The stock's latest whipsaw action stems from the company predicting a steeper loss than anticipated in the current quarter, indicating that an industry slowdown is still weighing on the largest US maker of memory
For chip companies (SOXX), Samsung Electronics Co., and SK Hynix Inc., 2023 has been a crushing time after the glory period of the healthcare lockdown years.
September has been a month where we are experiencing weakening fundamentals as the US consumer is truly stretched.
Customers in big US markets for personal computers and smartphones have slashed orders as they cope with lackluster demand and stockpiles of excess parts.
Many are continuing to dive deeper into debt to make ends meet and that trend will not go away as the US middle class shrinks further as they grapple with soaring inflation.
The lack of consumer strength will mean it will take longer for Micron to return to profits.
Prices for Micron’s products are going up, and the rate of the price jump is increasing and we can probably say that about prices in most industries.
Sales have fallen for five straight quarters. In the three months ended in August, Micron’s revenue declined 40% to $4.01 billion.
The forecast suggests sales will begin to grow again in the fiscal first quarter, which runs through November.
Beijing has proved a thorn in Micron’s side.
This negative headwind has already cut into the US company’s revenue in China — the largest market for semiconductors — in what management has previously called a “significant headwind.”
The outlook remains mixed in the short term. In traditional servers — the computers that are still the mainstay of most data centers — demand remains tepid at best.
Both personal computers and smartphones will return to growth next year, with units increasing by a percentage in the low- to mid-single digits.
To cope with the slowdown, Micron and its peers reined in production, severely reducing supply and helping prices bottom out.
Micron will be demonstrably below peak 2022 output for the foreseeable future. The company plans to continue to run factories at less than full capacity well into calendar 2024. Micron also will further reduce spending on new equipment next year.
These are bad signs in the short term, but the strategic importance of MU puts a solid bid under the stock price.
I wholeheartedly expect the industry outlook to brighten considerably by 2025 — especially as artificial intelligence systems demand new types of more expensive memory chips.
Therefore, every big dip is a buying opportunity in Micron because this stock is resilient.
Luckily, big dips are common in MU and readers should be patient to wait for optimal entry points.
This is a good one to buy and hold for the long term.
